Daily Market Reports | Dec 06 2008
By Greg Peel
The Dow rose 259 points or 3.1% while the S&P added 3.6% and the Nasdaq 4.4%.
There was only one point of any interest on Friday on Wall Street and that was the official November employment figures. In September, Wall Street was surprised when 110,000 jobs were actually added in the US. But reality hit in October with a more credible loss of 240,000. The Street was braced for a more depressing November, with economists pencilling in as many as 320,000 job losses.
When the number came out as 533,000 a lot of jaws dropped. This was the worst result since 1974. To add insult to injury, the September and October numbers were collectively revised to include an additional 199,000 of job losses. (That is the nature of this “official” data. The first number can end up being wildly different from the last).
Curiously, the unemployment rate only jumped from 6.5% to 6.7%. This seemed a bit light given the extent of the actual numbers. But the unemployment number counts only those actually seeking work and thus collecting benefits. Thus 6.7% hid the fact that in November over 400,000 Americans gave up the hunt and just dropped out of the market.
The figure was released before the opening bell and as one might expect it didn’t take long before the Dow was down 258 points. But there it stopped. Not only did it stop, but it began to rally, and with each passing hour the rally picked up pace. At the final bell The Dow closed on its highs.
If this had been, say, a June figure rather than a November one, Wall Street would have sold and sold and sold on its magnitude. But instead the buyers moved in. This is because (a) the market has already been sold and sold and sold; (b) those looking for a bear market rally are in “buy the dip” mode; and (c) schadenfreude.
The schadenfreude effect is simply that your bad news is my good news. The incoming administration won’t take charge until late January but already it has been making waves about fiscal policy. The Democrats tried to push the Bush Administration into another fiscal stimulus package before Christmas, but the lame ducks wouldn’t bite. Obama has thus indicated that as soon as he has the keys he wants to put the house in order with a big injection. If Bush had been “whatever it takes”, Obama is “whatever it takes and more”.
Had the jobs figure come in below expectation then there might have been a feeling perhaps the worst was already being felt and that the economy might be trying to right itself on the back of all the money thrown at it to date. In other words, a low number might have meant a more constrained further stimulus package. But the number was a shocker, so Wall Street now expects Obama to pull out the kitchen sink.
So it’s a buy.
The same can’t be said for commodity prices however, as big job losses mean a big drop in consumer demand.
The US dollar was mixed but oil fell US$2.10 to US$41.57/bbl. The last time we were here was in mid-2004, blissfully oblivious to what was about to happen. The world marvelled at oil’s extraordinary surge over the next four years to peak at US$147. It has only taken six months to erase those gains. Oil fell 25% this week, its steepest fall since George Bush Snr’s Gulf invasion of 1991.
Base metals have faired little better, and as London closed before the Dow pushed into the green there was more carnage on Friday night. Nickel and tin fell 2%, lead 3%, aluminium 4%, zinc 5% and copper 6%.
Gold fell US$8.00 to US$755.30/oz. The Aussie actually gained half a cent to US$0.6465.
The SPI Overnight added 52 points or 1.5%.
As a footnote to the jobs figures, we know that the Big Three automakers went to Washington a couple of weeks ago looking for a US$25bn hand-out, and in a PR brain explosion each CEO flew down from Detroit in a separate corporate jet. The media had a field day, and the Senate committee told the three card-carrying idiots to go home and then return to Washington only when they had a plan of how to use the money (beyond avgas, one assumes).
And so they did, in another nauseous PR exercise that only an American could appreciate. Each CEO “drove” all the way to Washington in their respective company hybrid vehicle prototypes. The media loved it – the rest of the world felt ill. And what did they return with? A request for a US$34bn hand-out.
